Is the boom over? Survey shows slowing Iowa farmland value gains

Even though many economic signs point the other direction these days, Iowa farmland continues to accrue value at a pretty good clip. But, recent numbers show the market may be at the end of its recent boom cycle as economic woes spill further into the ag sector.

That's according to the 2008 Iowa Farmland Values Survey, the results of which were released this week. The data show an overall 14% increase in land values over 2007 values. That's compared to a 22% difference in values between 2006 and 2007, according to Iowa State University (ISU) Extension ag economist Mike Duffy, the administrator of the annual evaluation of Iowa farmland values. Still, numbers released this week -- which range from just over $2,000 to over $6,300 per acre across the state -- represent a doubling in farmland values for Iowa in five years.

Duffy is quick to point out that farmland value data in the ISU survey is gathered in November and values are estimated as of November 1, making this year's survey not wholly reflective of the economic downturn that's been noted in the ag sector, primarily in the grain trade.

"There have been considerable changes in the situation in Iowa over the past few months," Duffy says. "Monthly average corn and soybean prices in Iowa had been continually rising until July 2008. Corn averaged $5.41 per bushel in July and current prices are below $3.00. Soybeans averaged $13.10 in July and the current prices are below $8.00 per bushel. This change in revenue has been accompanied by substantial increases in the costs of production, especially for fertilizers and seed."

These production costs, despite the continued rise in farmland values noted in the survey, will likely continue to cause an erosion in farm income per acre, Duffy says. This, in turn, will likely cause a downturn in values in the near future.

"Lower grain prices in recent months and the higher costs of production mean lower net revenue per acre, which is an indicator that land values will be moderating," he says in a university report. But, despite expectations of lower values in the future, the land market likely won't see disastrous conditions like those during the farm crisis of the 1980s.

"[2008 was] a return to more normal conditions in the land market where the unbridled exuberance we witnessed the past 24 months has been curtailed. I think the land values will retreat some from the highs, but not go into the free-fall we witnessed in the 1980s," Duffy says. "Where land values will go in the next year or so is really anyone's guess, but, overall, Iowa farmland should remain a good investment for the long run."

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Even though many economic signs point the other direction these days, Iowa farmland continues to accrue value at a pretty good clip. But, recent numbers show the market may be at the end of its recent boom cycle as economic woes spill further into the ag sector.